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Corporate Scandals and the A.B.A.

A major battle is brewing at the American Bar Association's annual meeting in San Francisco this week over three proposals that would give lawyers more leeway to report malfeasance by their clients. The initiatives deserve the support of the A.B.A.'s House of Delegates because, in the post-Enron era, the legal profession should be holding itself to higher ethical standards.

One proposed change to the A.B.A.'s Model Rules of Professional Conduct permits, but does not require, lawyers to speak up when they see a client committing fraud, or other crimes, that could substantially injure the financial interests of another party. The proposal recognizes that lawyers usually have a duty to keep their clients' confidences. But it rightly recognizes that a client who engages in fraud forfeits the right to confidentiality.

A second change would allow lawyers representing a corporation to speak out when an officer or director engages in illegality that is likely to do substantial harm to the corporation. A third proposal, which is less controversial, calls for changes in corporate governance and lines of reporting to make it easier to spot and address fraud.

The Securities and Exchange Commission is holding a sword of Damocles over this week's vote. If the A.B.A. fails to act, the S.E.C. may adopt a tougher rule requiring, not merely permitting, lawyers to report when they believe a corporate client has engaged in illegal acts. But the House of Delegates should not adopt the proposed rules to fend off greater regulation by the S.E.C. It should adopt them because it is the right thing to do.